March 23, 2011 – Financial firms can no longer be remiss about how they manage their counterparty data. Because their own health is at stake.
But they can easily establish the foundation for getting the data right, in five steps.
So says Steve Engdahl, senior vice president of GoldenSource, a New York-based enterprise data management firm who spoke at the Financial Information Management Association (FIMA) 2011 conference in New York on Tuesday, March 22.
Information about the counterparties firms trade with, the customers they do business and their financial wherewithal is not just the most important data that needs to be gathered – but the data which financial firms get wrong most often, says Engdahl.
That is because they either don’t have the correct information or don’t know there it has been stored. A mistake easily can cost a firm millions of dollars if it doesn’t know who it has done business with or what its total exposure is to a particular firm should it go out of business or otherwise disappear.
Case in point: Lehman Brothers had over 2,000 legal entities at the time it went bankrupt in September 2008 leaving hundreds of fund managers , other broker dealers and banks scrambling to figure out in what ways they were exposed and by how much.
Cost is just one reason financial firms have to be diligent. The newly created Office of Financial Research, whose goal is to monitor systemic risk, will require many of the U.S. largest firms will be required to report on what they trade and who they trade with using a new global business entity identifier known as legal entity identifier. Still to be determined is who will come up with the new ID codes.
Click here for a slide show that gives a rundown on the five steps financial firms should follow when establishing reliable methods of keeping accurate counterparty data.
This story originally appeared in Securities Technology Monitor.
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